IMF: House price rises need ‘close monitoring’

Sunday, May 14, 2017

Geoff Percival

The International Monetary Fund (IMF) has called for a “close monitoring” of the continuing sharp rise in Irish property prices.

Concluding its latest post-bailout visit, an IMF delegation yesterday gave a broad thumbs-up to Ireland’s continuing recovery, but noted the country still faces several challenges. While international corporate tax challenges and Brexit are the obvious external risks, the IMF said domestic concerns still remain. It added that while the country’s “crisis repair” is progressing, it remains incomplete.

As well as calling for the introduction of a “well- structured” land tax on vacant sites, a speeding-up of loan restructuring for distressed but viable construction firms and a further streamlining of the planning process, the IMF has welcomed the planned review of the Government’s Help-to-Buy scheme, which it said may add to demand pressures.

“The rapid increase in house prices calls for close monitoring, with a view to maintaining prudent lending and mitigating financial stability risks,” said Michele Shannon, outgoing head of the IMF’s Ireland mission team, who noted that Ireland’s housing pressures have risen since the last performance check.

Her remarks coincided with fresh CSO data showing residential property prices rose by 9.6%, on a year-on-year basis, in March — with an average 8% rise in Dublin prices being outpaced by a near 12% jump outside of the capital.

Ms Shannon said the Irish economy requires “future-proofing” from any re-emergence of a boom-to-bust economic cycle and that fiscal buffers need to be rebuilt. While the medium-term outlook for the Irish economy remains positive, “momentum can’t be taken for granted” and “substantial” financial crisis legacy issues remain.

She said while signs of progress are emerging in the housing market, “a more robust supply response will take time”. She added that debt remains high and non-performing loan levels remain elevated, but that they have reduced and the main banks are making “steady momentum”.

“Healthy growth is expected to continue, albeit at a moderating pace,” Ms Shannon said. However, she noted the broad-based growth in the jobs market and said the Irish recovery story, to date, had not been a foregone conclusion.

While Brexit represents “the most pressing and far-reaching challenge for Ireland”, international corporate tax policy changes — notably the Trump administration’s planned slashing of the US corporate tax rate and the EU’s common tax scheme proposals — also pose an external risk. To that end, the IMF stressed the need for a more broad and stable tax base here.

“Recent corporate tax windfalls point to concentration risks and potential volatility. In this context, unexpected revenue upsides should be saved,” she said, also noting that pressure on government spending space remains high. While declining to comment on personal tax policy, Ms Shannon said a review of tax expenditures should be considered and a reduction of Vat exemptions “would strengthen revenue”.

Asked about the partial sale of the Government’s near total stake in AIB, Ms Shannon said the timing would be up to the Irish Government, but agreed the best use of the sale’s proceeds would be to pay down government debt.